We are hearing that 2014 could be a breakout year for the U.S. economy. The jobs market is expected to strengthen next year along with economic growth, which should produce some improvement in wages and company earnings.
But the housing and mortgage markets are going to be in a tug of war.
The refinancing wave is over and lenders will be chasing the homebuyers.
Rising mortgage rates should make banks more willing to lend, but higher rates and rising prices will cut into affordability, which can price some buyers out of the market. Many expect home price appreciation will slow next year, but that will depend on the supply of homes for sale when the spring selling season starts. For some builders, spring starts shortly after the Super Bowl. The homebuilders are expecting 2014 to be a super year.
Tight credit will continue to be a drag on sales despite pent-up demand to buy new and existing homes for at least the first half of the year, but there is some hope that could change in some areas of the market during the second half.
In terms of the credit outlook, it appears the Federal Housing Administration will not be much of a help in boosting the availability of purchase mortgages.
The agency continued to raise its mortgage insurance premiums in 2013 and instituted a policy of charging an annual premium for the life of the loan. Even if the loan-to-value ratio falls below 78%, the borrower has to pay the 1.35% annual premium.
In May, FHA received 101,000 purchase mortgage applications just before the premium-for-life policy went into effect June 3. In August, FHA received 64,000 purchase mortgage applications.
FHA purchase mortgage volume has failed to pick up since then, and the FHA officials seem to be handcuffed when it comes to reducing premiums and making FHA financing more affordable for first-time homebuyers.
The best hope for credit easing in 2014 could come from Fannie Mae and Freddie Mac.
Rep. Mel Watt, D-N.C., will be sworn-in as the new GSE regulator on Jan. 6. Watt has already announced his intention to delay loan fee hikes proposed by the current Federal Housing Finance Agency acting director Edward DeMarco.
Under DeMarcos rule, the FHFA has gradually increased Fannie and Freddie loan fees to shrink the GSEs share of the mortgage market.
Watt will be free to set his own course and he is expected to favor wider access to mortgage credit.
Watt is expected to take his time in adjusting to his new responsibilities. He has served in Congress for over 20 years and is likely to proceed very cautiously at first.
If there is any loosening in credit from the GSE side, it will occur well into the second half of the year.